Amazon.com Inc.’s small third-party vendors are facing big inventory problems as the coronavirus combined with the Chinese Lunar New Year holiday hampers manufacturing. Some merchants are raising prices to intentionally slow sales and others are trying to shift production to other countries trying to avoid running out of stock.
If a vendor runs out of stock on Amazon’s marketplace their rankings are affected negatively in consumer product searches.
Larger manufacturers and retailers face their own inventory shortfalls as factories in China only slowly ramp up, but smaller merchants are particularly exposed at two points in their supply chains. The lean inventory strategy is a big feature of Amazon’s third-party marketplace, which accounts for more than half of Amazon’s retail sales.
Housing prices rise
According to the S&P CoreLogic Case-Shiller National Home Price Index, the pace of home price growth sped up in December, marking a full eight years of price increases in American homes for sale. Average home prices in major metropolitan areas rose 3.8 percent in the year ended in December, growing up from 3.5 percent the prior month and 3.3 percent in October. The 20-city index posted a 2.9 percent gain annually, up from 2.5 percent the month prior. All 20 cities saw price increases.
The Census Bureau reported that housing starts came in at an annual rate of 1.57 million units in January, the second largest level in more than 10 years following December’s peak. Though down 3.6 percent from December, total starts were up 21.4 percent from January 2019. Mild winter weather alongside low interest rates helped boost starts.
Despite the recent developments in the housing sector, demand for homes still exceeds the supply.
As for existing homes, the National Association of Realtors reports that existing home sales in January decreased 1.3 percent from December but increased 9.6 percent from January 2019.
Homeowners buying new and existing residences spend on furniture, carpet, appliances and other items making housing a good barometer of freight flows.
Producer Price Index slows
The Bureau of Labor Statistics reports that the U.S. Producer Price Index (PPI) for finished goods fell 0.1 percent from December but rose 2.6 percent compared with January of last year. Core PPI, which excludes volatile food and energy prices, remained unchanged from December, and increased 1.2 percent from January 2019. The PPI is an indicator of inflation at the wholesale level and measures the change in prices received by producers.
Retail sales grow in January
The Census Bureau reported that seasonally adjusted retail sales increased 0.3 percent in January. Core sales, which exclude the volatile motor vehicle and gasoline stations categories, added 0.4 percent compared with December. Sales of building materials jumped 2.1 percent, while sales at clothing stores decreased 3.1 percent, from December. Total sales and core sales were up 4.4 percent and 3.3 percent from January 2019, respectively.
Consumer spending is the main driver of the U.S. economy, accounting for more than two-thirds of economic output. It rose at a weak 1.8 percent annual rate in the fourth quarter of 2019, down from a 3.2 percent rate in the third quarter, so there are few signs that the pace of household outlays picked up meaningfully in the first month of 2020.
January factory output down slightly
The Federal Reserve reported that factory output dropped 0.1 percent in January. Compared with a year earlier, the index was down 0.7 percent, which marks its seventh consecutive contraction. Factory output remained unchanged in 2019 over 2018.
Productions cuts to Boeing’s 737 MAX and the disruption to supply chains from the spreading coronavirus remain as concerning economy headwinds for the manufacturing sector.
Federal Motor Carrier Safety Administration’s Drug and Alcohol Clearinghouse update
Nearly 8,000 substance abuse violations have been detected and identified by The Federal Motor Carrier Safety Administration’s Drug and Alcohol since it went live Jan. 6th this year. This was reported by the agency on February 21st.
The Clearinghouse so far has more than 650,000 registrants.
The drug and alcohol violations recorded in the database include pre-employment tests, random tests, reasonable suspicion tests, post-crash tests and refusals to submit to a test.
Carriers and their third-party administrators, state driver licensing agencies, law enforcement officials, medical review officers and substance abuse professionals are authorized to use the Clearinghouse to check for a CDL holder’s violations.
Freight capacity crunch coming?
A shortage of motor carrier capacity may be coming later this year. As truckload carriers struggle with rising insurance costs, low rates, and overcapacity, this is viewed as good news for the industry.
As carriers lose drivers to the Drug and Alcohol Data Base, smaller carriers close due to high insurance costs, and produce season begins in mid-May, truck availability will tighten. Add to this the expected inbound surge of imports once Asian factories ramp back up to restock the U.S., and the ingredients are there for less capacity coupled with higher freight rates.
Current truck market
DAT Solutions reports that in the week ending February 23rd that spring could be coming early to truckload freight as load counts are holding steady and load-to-truck ratios are showing signs of life, for vans, reefers, and flatbeds. Rates are even starting to trend up, especially in the eastern half of the country.
On a national level, rates edged up a penny or two last week, but the average rates are still lower than they were in January for dry van, reefer, and flatbed equipment. Those overall numbers don't tell the whole story, however. Spot freight volume is holding steady, and rates are not nearly as low as they were in February 2017, even though they do look anemic compared to the past two years.
There's snow in the forecast this week in the Midwest, which could slow the rebound's momentum temporarily. When the roads are clear again, pent-up demand should drive rates up. Soon after the thaw, load counts should continue to rise. When the weather is consistently mild, freight volumes will take off, as construction and drilling projects start back up, and fresh produce is harvested in the U.S. mainland.
Currently, the national average dry van rate is $1.79 per mile versus $1.87 in January.
Railroads continue to report lower volume
According to the Association of American Railroads (AAR), U.S. freight railroads hauled 479,137 carloads and intermodal units in the week ending Feb. 15, an 8.6 percent decrease in traffic compared with the same week in 2019. Total carloads for the week declined 9.1 percent while intermodal volume fell 8 percent.
For the first seven weeks of 2020 compared with the same period in 2019, U.S. railroads reported 3,375,279 carloads and intermodal units, down 6.2 percent;
At Wagner Logistics
Wagner continues to refine processes and improve systems as we work to adopt our first robotic fulfillment solution. A shout out to Wagner’s Solutions team who also is evaluating workflow planning and labor utilization. The name of the game is improving quality and efficiency.
Another shout out to the Wagner HR team for their great work in finding quality people to fill positions as we continue our growth. Wagner’s culture coupled with competitive comp plans makes our company a great place to work.
What may Wagner Logistics do for you?
I hope that you will provide us the opportunity to demonstrate our commitment to making your supply chain better. The Wagner team is innovating and continually improving our people and systems.
Considering new distribution centers or freight RFP? Give Wagner an opportunity to serve you. We have an extensive history of 74 years of service to our customers and would love the opportunity to collaborate with you.
As we say every day, Bring it!
Have a great day!
John Wagner Jr.
About Wagner Logistics
Wagner Logistics was founded in 1946 on the principle that every customer is a big deal and that continues to pervade our mentality, producing a superior customer experience. The company began in trucking and remains dynamic offering top-notch transportation, dedicated warehousing and robust fulfillment services. We strive to produce innovative solutions, in addition to our superior onboarding process which makes transitions seamless, and have been honored 18 years in a row by Inbound Logistics as a Top 100 3PL. Our customers drive our entry into new geographic markets, technological advances and ever-changing distribution challenges. Where do you want to be? Wagner says, Bring It!